Frank Newman: KiwiBuild bargains

The housing cost crisis affects virtually everyone. That is pretty much the conclusion one can draw from the KiwiBuild eligibility rules which were announced last week.

To be eligible for a KiwiBuild home, a buyer must:

• Be a first-home buyer or "second chancer" (being those who have previously owned a home but are through adverse circumstance are in a position similar to the first home buyer);
• Be a New Zealand citizen or resident;
• Intend to own and live in the home for at least three years;
• Have an income below $120,000 if a sole purchaser or $180,000 for a couple.

The income criteria is surprising given the scheme’s intended purpose. The income thresholds are so high that around 90% of all income earners and almost 100% of first home buyers will be eligible for a KiwiBuild home.

While KiwiBuild it is the first acknowledgement of the universality of the housing problem, it makes a mockery of the scheme being promoted as something especially for low income earners. Assuming they are able to afford a KiwiBuild home, low income households will have to take their chances like everyone else, and given the number of people that are likely to express an interest going into the draw for an "at cost" homes, the prospect of them getting one is slim. In the first few days following the announcement, some 20,000 people have already registered to go into the ballot.

The cost of the KiwiBuild homes will be $650,000 (including GST) for a three-bedroom house, $600,000 for a two-bedroom one, and $500,000 for a one-bedroom place in Auckland and Queenstown; and $500,000 for houses built elsewhere. That's a heck of a lot cheaper than the average cost of a typical land and new home package, even in the provinces. It appears that this cost price is only achievable because the sections are likely to be "spare" land obtained from other state agencies at less than market value, and the houses are small.

Housing and Urban Development Minister Phil Twyford, said 1,000 KiwiBuild residences would be built in 2018/19, 5,000 in 2019/20, 10,000 in 2020/21 and 12,000 a year average through to 2028. At least 50,000 of these homes will be in Auckland.

Ironically the three years that the homes must be kept is two years less than the five-year timeframe for the Brightline test, which treats gains on the resale of rental properties or second homes and baches as income for tax purposes. Five years was set on the presumption that those who sell within that period are deemed to have purchased with the intention of resale, and therefore should be taxed. From this one can conclude that the government does not mind people buying a KiwiBuild home with a short-term (and tax free) profit motive in mind. Buying a KiwiBuild home at cost, and selling it three years later, will be a nice earner, from yet another irrational government policy.

The Minister acknowledges that keeping the costs within the KiwiBuild cap will be a challenge - the cap has already increased $50,000. He said the major challenges are: "land availability, workforce constraints, consenting time frames, development and build times, and growth capacity constraints".

Yes Minister, these are major challenges. They are the very same "challenges" that all developers and builders are facing and are the things that have caused housing costs to skyrocket.  

In truth, the "housing crisis" is really a "land and building cost crisis". If it were described as such then the focus of attention could be directed at a practical solution rather than a political one.

If the Housing Minister really wanted to provide affordable housing he would tackle the issues that are causing the private sector to increase land and building costs. Here's what he could do:

• Cut local council red tape and make planning rules more permissive. Even getting a building consent has become a nightmare and now usually requires a resource consent. It seems a granddad can't even build a tree house nowadays without the council getting involved!
• Bring back on the job apprenticeships and require fit and able unemployed people to do labouring work. If that's not enough to deal with the labour shortage then allow all builders to hire migrant workers to do the job. Is that really any different from buying cheap goods from China?
• Get rid of the over-protective health and safety regulations which are adding tens of thousands of dollars to jobs.
• Make sure councils zone sufficient ‘affordable’ land to meet local housing needs. 

KiwiBuild will not make houses affordable for low income people. What KiwiBuild will do is buy the government five years or so during which time it can say it is doing something to correct a problem created by the previous government.

Frank Newman, an investment analyst and former councillor on the Whangarei District Council, writes a weekly article for Property Plus.